Cineworld

Competition Commission: And Now, The End Is Near

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Cineworld Cambridge

Finally, more than two years after Cineworld plc acquired the City Screen business that operates Picturehouse cinemas (yes, it was December 6th 2012 that this all started), and getting on for two years after the Office Of Fair Trading first referred the purchase to the Competition Commission, the actions that the Competition Commission requested have finally now all been completed and we can – almost – make an assessment of who’s gained and lost in this process. Today it was announced, about a week after the signs came down and the speculation began, that the European cinema chain The Light would be taking over operation of the Cineworld in Cambridge. The chain, started by businessmen Keith Pullinger and John Sullivan, currently operates two cinemas in the UK in New Brighton and Wisbech as well as two in Europe, with plans for another six in the UK over the next two years. Their mission statement on their website is promising, as they pledge:

  • Eye catching architecture and contemporary interior design which creates an exciting environment and encourages socialising.
  • Adventurous film programming, featuring blockbusters, independent and international films.
  • The newest and latest on screen content: opera, sport and music
  • A café bar creating relaxed atmosphere, a place to socialise and attract the mix of families, young people and mature adults who make up the cinema audience.

But this process has taken so long, it might be easy to forget how we got to this point. (It’s been frustrating recently for customers of the Cambridge cinemas, but the nature of the legal process meant that no one could formally announce anything until the sale was completed.) With a particular film theme, let’s look at the winners and losers in all this.

The Good – good news for Picturehouse customers

Back in 2012 when the acquisition was first announced, the mood was pessimistic to say the least. It was presumed by many that the change in ownership would see the cinemas transformed into mini-multiplexes, losing their focus and character, yet if you look around the country that hasn’t happened. I can say this with first hand knowledge, having been to Picturehouse cinemas in Norwich, Liverpool, Hackney, Exeter, Southampton and Edinburgh since that day in 2012 as well as my two locals, and they all still by and large have the same quirky, comfortable atmosphere and the same higher end film programme. Each is distinct but clearly part of something larger, and that can also be said of the cinema in Cambridge.

Two of the the Picturehouses did get sold under the Competition Commission decision, in Aberdeen and Bury St. Edmunds. The former was purchased by Filmhouse, who not only run an independent arthouse cinema in Edinburgh but also the Edinburgh International Film Festival, and it has carried on pretty much business as usual. The latter was bought by Tony Jones, former co-founder of City Screen and now back in independent cinema. The Picturehouse programming arm continues to programme for that cinema and a reciprocal agreement on membership has kept discounts in place. Thankfully the cinema had a significant refurbishment before the sale and the bar and restaurant are a delight, and with the news that the Abbeygate (as it is now called) have purchased the bingo hall next door and are converting that to a third screen, the future of quality cinema in Bury St. Edmunds also looks assured.

But these were always likely to be the easier of the two situations. It wasn’t impossible that an independent could have come in and taken over Cambridge, just that there were so many more babies in the bathwater there that a change in ownership could have very easily set the cinema on a path to ruin. The easiest way to maintain everything that the cinema stood for seemed to be to keep the current owners in charge, and that has been the final outcome. The Arts Picturehouse will remain, and for those like myself who stood on the pavement outside the cinema in 2013, placards in hand, and to the 15,126 people who signed the petition directed at the Competition Commission – the vast majority of whom were current or former Arts customers – it is time to breath a sigh of relief, albeit a guarded one.

I’ve been in discussions with people on social media who fear that the change to a mini-multiplex in 2012 was just delayed for Cambridge and that the programming for the Arts Picturehouse will now simply transform it into the mini-multiplex now that Cambridge no longer has a Cineworld in town. There’s a few reasons why I don’t think – and hope, for nothing in life is certain – that this will happen. First off, Cineworld seem to have recognised through this process that Cambridge is one of the crown jewels of the Picturehouse chain and that to dilute it now would be nonsensical. The multiplex that they are selling has around four times the seating capacity in its nine screens that the Arts has in its three, and even the economists of the Competition Commission (sorry, couldn’t resist one last dig) could work out that a profit-based decision would be to sell the arts cinema. Also, if you look at the kinds of areas I mentioned earlier (Norwich, Edinburgh, Southampton, Liverpool and so on), they are a mixture of areas both with and without a Cineworld but all with other competition, and their core programming is not so different to that of the Cambridge cinema. Bear in mind that the programming for all of these cinemas is generally planned months in advance and then fine tuned the week before, wholesale changes are not even possible in that sense for some time to come without massive and unnecessary disruption.

However, one of the big things that sets Cambridge apart – and one of the major motivating factors for trying to protect the status quo – is all of the programming at the cinema which doesn’t come directly from Picturehouse or which marks them out from the competitors. If you look at the latest programme you’ll see there’s still at least one 70mm film a month being shown, there are repertory programmes from the University of the Third Age, the University of Cambridge’s Faculty Of Modern and Medieval Languages, short films from gayinthe80s.com / Encompass Network and films from young trainee programmers at Long Road Sixth Form College. But the two most undervalued contributions come from the Cambridgeshire Film Consortium – who have a dozen educational events in the latest programme alone – and the Cambridge Film Trust, who work to foster film education across the Eastern region and the whole of the UK, and who – not the Picturehouse as most people seem to think – run the Cambridge Film Festival each year. The festival last year moved to late August and saw a 30% increase in attendance on the previous year, and if you’ve ever been to the Arts Picturehouse and wondered what was up the stairs beyond the screens, then it’s these organisations and the projectionists. Hopefully any doubt in what the future held for any of them is now removed.

The one comment that I’ve made before and that I’ll make again is that if the programming changes at the Arts Picturehouse, it’s less likely to be as a result of the sale of the Cineworld and more likely to be down to the fact that the cinema’s programmers are making brave choices that then don’t get backed up by an audience. In November the cinema had screenings of 2001: A Space Odyssey, but none in the much larger screen 1, and the cinema responded to audience requests and moved a Friday night screening into screen 1 which then pretty much sold out. But I was also at two separate films on Friday nights in screen 3 last year that had an audience in single figures, and that’s not sustainable. There’s no point in the programmers being bold if no-one then watches the films, and I would urge any regular customers reading this to check their brochures and seek out the daring films being shown. Quite often these days the more niche films, such as the recent Denis Villeneuve release Enemy with Jake Gyllenhall, get relegated to a 10:30 slot because there’s no confidence they’ll attract a sufficient evening crowd, and I can’t buy all of the tickets myself (as much as I’d like to). Just don’t come complaining if you don’t watch the films and then they disappear.

The Bad – Cineworld Unlimited customers (and possibly all Cineworld customers)

Cineworld Unlimited

When someone tells you that you have two things and one is going to be taken away, and that you must lose one or the other with retaining both not an option, then it’s almost impossible to campaign for both. I did try to draw attention to the potential risks of losing the Cineworld in terms of cost, but the momentum to fight for the Cineworld just never materialised to the same extent. I personally consume films in huge volume, averaging around 160 a year since I started this blog, and much of that has been made possible by the use of my Unlimited Premium card. I can and will still visit Cineworlds in Huntingdon, Bury St. Edmunds, Haverhill and Stevenage regularly (as well as a host of others if I’m in the area) and I’m hoping that there’ll be a new Cineworld just fifteen minutes away from me in Ely come next summer, but I’ve often relied on seeing three or four films in a day split between the Arts and the Cineworld in Cambridge. The Light have said they will honour Unlimited cards, which also give significant discounts on food and drink, for three months, but after that I’m expecting to see my costs go up every time I have a film day in Cambridge.

The Competition Commission’s research suggested that around 8% of their customers nationally are Unlimited customers (there was no figure specific to Cambridge). But I guarantee that the vast majority of that 8% in Cambridge are seeing two or more films a month, and for them this will represent either a significant rise in cost or more likely a significant reduction in the number of films they can see in the cinema. Frankly, as this blog was founded on the principle of encouraging people to watch as many films in cinemas as they could, that breaks my heart just a tiny bit. I hope anyone that can’t get to another Cineworld still manages to see some films once the Unlimited extension expires.

But what of the other 92%, those that just buy single or group tickets and don’t rely on the discounts of Unlimited? We’ll know tomorrow at noon, when the Light’s website goes live, whether they’ve gained or lost on price. The fundamental basis for the decision by the Office Of Fair Trading to refer this to the Competition Commission in the first place was that more competition helps to naturally regulate price, but we won’t know until tomorrow if there’s any change to the cinema’s costs. The good news is that in Wisbech, the cinema seems to have recently reduced its prices by 20% in an effort to better pitch to the local consumer. One of the things I found out in my research into this in 2013 is that cinema chains set prices locally, so in that sense competition should have an effect, but there’s probably only half a dozen cities in the country with enough cinemas for competition to make any difference, three being unlikely to cut it. With that 20% price cut in Wisbech, a standard Friday night ticket is still 20p more expensive than their only competitor, the single screen The Luxe – your guess is as good as mine as to whether there’s actually any market forces at work there.

I also then looked at that same Friday night comparison for The Light’s other cinema in New Brighton, and that looks less promising. There’s quite a diverse collection of cinemas within half an hour’s travel of that cinema, and the range of standard Friday night ticket prices is impressive:

New Brighton Prices

To give The Light their credit, they are competing a little with the Picturehouse on content, showing Birdman and A Most Violent Year when few of the other cinemas have, but their closest three cinemas geographically are the three on the left, so if you see a mainstream film at The Light in New Brighton, you’re paying significantly more than the local competition.

So I will reserve judgement on the pricing and film choice of the new cinema until their website is live tomorrow. The best possible outcome for the cinema lovers of Cambridge would be The Light starting to compete more on programming with the Picturehouse while making the pricing competitive, but only time will tell. Hopefully customers, now much more conscious of price if this process has had any effect, will vote with their feet if they’re being overcharged in Cambridge and the pressures of the market might actually have the effect that I cynically doubt they will. I am completely happy to be proven wrong on this one.

The Ugly – the Competition & Markets Authority

Yes, this process has been going so long that the body that referred this decision and the people they referred it to have themselves been merged, the OFT and the Competition Commission becoming one in the Competition & Markets Authority. When you’ve processed the irony of that, let’s recall what the intent of this process was to do. The idea of forcing Cineworld to sell a cinema in three areas was to encourage competition in those areas and that in return, that competition would naturally help to control prices for consumers. As was pointed out by others almost on day one of this process, if that were true in and of itself then cinemas in Leicester Square would be the cheapest in the country, but clearly there’s more at work here. What the CMA and its predecessors couldn’t do – because that would effectively be a price control, and that’s not their remit – would be to determine how much competition should influence pricing in the market. At the time of the sale, one of those standard Friday night tickets at the Cineworld in Cambridge would have set you back £9.90, compared to £9.70 at the Vue or £11.00 at the Picturehouse. If in the longer term those figures don’t all just increase in line with the Retail Price Index, then this process will have achieved something. It will be fascinating to see tomorrow how The Light’s starting price compares to the final Cineworld price; I would argue that if it’s even a penny higher, this process has failed spectacularly on the main front it was trying to deliver.

But actually, I’d make a further argument that it’s already done just that: this process has already repeatedly allowed to happen the exact thing it was designed to stop. 

What do I mean by that? Well, although it couldn’t set price controls, the Competition Commission set a test as part of the third party survey conducted in their investigation. The idea was that they questioned people as to whether or not they’d change cinema if the one they normally went to put their prices up by 5%. The principle is that, if enough people would switch from Picturehouse to Cineworld or vice versa if the price went up in one of them, then it would be in Cineworld plc’s interests to raise prices because they would still keep the profit.

What the research showed was that it was in Cineworld plc’s best interests not to raise prices in Cambridge, because three times as many survey respondents said they would go to the opposition (i.e. Vue) as they would stay with a Cineworld plc cinema. In that event, Cineworld loses all of the money rather than gaining the profit, so that one piece of evidence should have told them that not keeping prices competitive would have seen them lose business, and the market was already telling them.

But that’s not the way the Competition Commission saw it, they demanded the sale of a cinema in Cambridge and two other areas. This was taken from one of my blog posts in September 2013, and prices were still at this level when the Commission made its final judgement in October 2013.

CC Chart 1

Can you guess what happened next? Between then and now, Cineworld have made a price rise of 50p per ticket (more than 5%) and Picturehouse have made two of 50p each (more than 10%). So if there was anything to be gained by customers switching cinemas, then this process has taken so long that Cineworld plc have profited from it three times in Cambridge before the cinema sale went through. Doesn’t that strike you as making this process a spectacular waste of everyone’s time and effort?

Anyway, what’s done is done, and despite our best efforts the process has ploughed on unhindered, ignoring the voices of not only the general public but prominent industry figures and members of both Houses Of Parliament. And now, here we are, with the CMA having taken nearly eighteen months to put a bolt on the stable door, but the horse has already made its exit.

I think there are questions to be asked here of how these bodies have conducted this process: the definition of any kind of success criteria is shaky at best, what I’ve seen an outsider from the reports I’ve read has given the impression that industry feedback has been overlooked in favour of evidence provided by competitors with vested interests in destabilising a competitor and we now have no guarantee that this will actually deliver what it was intended to, especially given that what it was trying to prevent has already happened. Maybe the merger into the CMA dragged out the process, but frankly I would be living in fear and trepidation if this was how the CMA handled an investigation into an industry I worked in. I think, as consumers that this body is working to try to protect, we deserved better.

In Conclusion

Sometimes good things come of bad processes. I would like to give the CMA some credit, for at least in forcing the sale the Picturehouses sold ended up in safe hands of a similar size and shape and we will shortly be in a position to judge if the sale of the Cineworld has had a similarly positive outcome. I truly hope that’s the case here, and in an ideal world The Light would help to keep prices down relative to the cost of living, and we’d start to see them programming some films which might give Picturehouse a bit of competition of the kind we actually need. It might also see the sadly defunct bar next to the Cineworld and the foyer itself given a new lease of life, and possibly an end to the generally loathed allocated seating policies that hadn’t won Cineworld many friends in the last year or so. Putting the Cineworld into the hands of a brand with the best of intentions, but who aren’t as tried and tested as the likes of Odeon or other multiplex operators, is a brave move but it’s not completely without risk either. Like Morgan Freeman at the end of The Shawshank Redemption, I hope, but the next few months will tell us if it’s warm sand between our toes or a dank, muddy beach covered in puddles and time to get out the Wellington boots.

P.S. One last thank you to all the staff at the Cineworld in Cambridge, who it seems are being taken on by The Light. It’s one of the few multiplexes I’ve ever been to where, when I raised an issue with projection, they did something about it, and the staff have always been friendly and courteous to me. I’d just like to wish them all the best for the future.

Competition Commission: The State Of The Cinema Nation

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The fight against the Competition Commission’s decision goes on, although since much of that continues to go on in darkened boardrooms and we occasionally get whispers of the latest developments, it’s hard not to feel a little disenfranchised at the moment. So with my own involvement in the campaign reaching a temporary lull, partly because of allowing the likes of Cineworld to pursue their own appeals and partly because, to paraphrase Derek Zoolander, I’m really really ridiculously busy right now with things that don’t relate to the inside of a cinema, I felt it was an ideal opportunity to dig deeper into one of the aspects of the debate that’s bothered me most.

When coming to the conclusion that the Cineworld and Picturehouse cinemas were in direct competition, one of the pieces of supporting evidence revolved around the fact, supported by evidence from some of the cinemas, that the divide between art house and multiplex cinemas is breaking down and that digital projection allows cinemas to program a wider variety of films. Here’s some relevant paragraphs from the Commission’s final report on the issue.

Distributors are responsible for the marketing of the films they handle. Their aim is to maximize a film’s profitability through promotional activity, the timing of the film’s theatrical release and the subsequent exploitation of DVD and television rights.
Although the number of film releases has increased rapidly in recent years, the majority of new films do not achieve widespread release. Films are generally classified as mainstream or specialized (or non-mainstream), the latter category including foreign language and subtitled films, feature documentaries, art-house productions and films aimed at niche audiences. The BFI told us that the definition of specialized films included both films which were obviously specialized but also a range of films which were not inaccessible or challenging but which appealed to a specific demographic. Specialized films generally account for about 8 per cent of box office revenue.
Cinema exhibitors told us that digital technology had delivered a number of benefits: it had given a high-quality experience to customers, enabled the growth of 3D, and made it easier to change programming and advertise with shorter lead times. Odeon commented that the full benefits of this had yet to be realized, as there was potential to programme even more flexibly… In particular, Odeon anticipated that digital distribution would reduce the requirement for a fixed number of shows per week (historically a minimum of 21) and might result in any digital cinema being able to programme more varied content each week.

That gives some general background on how the industry currently sees itself. Now, something a little more specific from the cinemas, and the only paragraph I can find in the report that shows the cinemas are in competition in terms of programming, above and beyond a revenue comparison.

Non-multiplex cinemas are typically located in town centres. Some of the non-multiplex cinema chains and independent cinemas focus more on showing specialized films. Some of these cinemas show exclusively specialized films (and are typically referred to as ‘art-house’ cinemas), but the majority show a mix of mainstream and specialized films. Vue told us that in its opinion there were only a very small number of cinemas that played only specialized films, for example the Cornerhouse in Manchester, the Watershed in Bristol and the Showroom Cinema in Sheffield. Odeon said that there was no longer a differentiation in the eyes of the industry between ‘Hollywood films’ and ‘art-house’ films and that the distinction between different types of cinemas had been eroded by more complex fragmentation, with cinema exhibitors trying to meet commercial targets by programming the most successful films for each cinema on a week-by-week basis. A number of parties told us that they expected to see more overlap in future between film programming in multiplex and non-multiplex cinemas as digitization allowed all cinemas to be more flexible in their film programming.

So the view of the industry appears to be that the barriers are falling down. This must mean that access to the specialized films is becoming ever easier for customers, right? Although given that they only make up 8 percent of the market, maybe they’re not commercially appealing enough. What it doesn’t indicate is whether price or choice is viewed as more important. There is one paragraph that does comment on this, however.

Similarly to the parties, Everyman told us that Picturehouse offered a different experience, product and programming mix to Cineworld. However, Everyman also stated that it competed with both Cineworld and Picturehouse in that they operated in the same industry but did not currently operate sites in locations where they competed directly against one another. Everyman believed that if it were to compete with Cineworld and Picturehouse it would be on a mixture of product offering and quality of service and that price would not play a major factor. We also received a considerable number of letters from the general public stressing the differences between the product offerings of the Picturehouse cinemas and the Cineworld cinemas in Cambridge and Bury St Edmunds. A smaller number of letters commented on competition between cinemas in Aberdeen.

So at least one independent cinema chain, and the customers of the cinemas themselves, appear to contradict the views of the rest of the industry that these lines are blurring. But don’t worry, the rest of the industry was keen to contradict its own customers one more time.

By contrast, Vue and Odeon did not draw such clear distinctions between the positioning of multiplexes and independent cinemas. Odeon told us that it was constantly evolving its cinema offer and attempting to ensure that each cinema catered for the widest demographic and taste and gave examples of refurbishments and upgrades it had carried out to meet specific needs. Vue stated that ‘a cinema is a cinema’. These views were echoed by Curzon: it believed that there was a large overlap between cinema types, with 60 per cent of customers willing to go both to multiplexes and independent cinemas.

There is clearly a marked divide between how much of the industry perceives itself, and the opportunities that digital distribution can provide, and how the customers in the affected areas see this. But are Aberdeen, Bury St Edmunds and Cambridge unique cases, or symptomatic of a greater national divide?

There is only one way to find out, and that’s to look at what cinemas across the country are currently showing. To do that, I’ve taken a snapshot of the fifty largest urban areas in England and Wales. I will admit up front that I’ve taken a slightly different approach to the Competition Commission; they effectively stuck a pin in the centre of an area and drew a twenty minute circle around it to consider how far people would travel. I’ve considered urban areas, simply on the basis that it’s easier for me to work out, but also on the presumption that public transport would allow access for anyone within that urban area to see the films listed. The full list of areas can be found here, and Cambridge – our test case in terms of the Commission debate – is the 45th largest urban area on the list.

I’ve then looked at the films showing this week, between Friday 29th November and Thursday 5th December, in any cinema in each of those 50 urban areas. I’ve narrowed the field slightly; I’ve looked at those films given some form of general release in the calendar month of November, so either in this week or the four preceding weeks. I’ve taken my list from the films listed at Launching Films. (Cinema listing times have been taken from Google’s cinema listings pages.) There are a handful of mainstream films, including Thor: The Dark World, Jackass Presents Bad Grandpa and Captain Phillips that were released prior to this date that are still showing in the majority of areas. A number of cinema chains have had advanced previews this weekend, including screenings of Frozen in a number of cinemas. As well as that, the Picturehouse chain had advanced screenings of Nebraska on Sunday, Cineworld had The Secret Life Of Walter Mitty on Monday and Showcase had previews of Additionally, I’ve ruled out live events and Bollywood films for now to make the count easier – I’m hoping to automate the counting process with some of my IT knowledge from my day job, so that in future I can cover those too.

So of those films released in November, there are a total of 30 still showing somewhere in one of those 50 urban areas this week. I believe they break down into three distinct categories: the mainstream films, which are showing exclusively at the multiplex type cinema (or their smaller cousins); there are the specialized films, which are showing pretty exclusively at the Picturehouse or independent cinemas; and then there’s the crossover films, those films likely to be showing in almost any cinema that has the capacity. This last list is the shortest, and they can be easily categorised at this time of year by the approach of awards season. If you had to go through the list of thirty and pick out the four most likely to be on awards ballots come January next year, it would be these four. Consequently, they have a broad, cross-demographic appeal that neither of the other lists can claim.

Here’s the list of films, and the number indicates how many of those urban areas are still showing the films in question.

State Of The Nation 1

So if you want to see time travelling turkeys or futuristic child slaying, you’re in luck as those are the two films guaranteed to be showing everywhere this week. If you live in Barnsley, you may have to make do with those, as it’s the one area not showing Carrie and no longer showing Gravity. You also can’t see Saving Mr Banks there, and if you live in Slough you’ll also have to travel. So this shows that there are effectively eight films fighting for the largest share of the box office, showing in more than two-thirds of areas, and whether or not you can see the other films is a form of cinematic postcode lottery. In terms of the overlap between cinemas, only one film provides any evidence: Joe Swanberg’s Drinking Buddies, a film from a small but prolific American director with a more mainstream cast, had one-off showings in thirteen Vue cinemas on Tuesday night. It certainly shows the potential of digital alluded to in the report, but it’s hardly being exploited to the full benefit of customers yet.

But it’s not one that relates to the size of the area that you live in. Of the thirty films, I couldn’t find five of them showing in London this week, but there were still screenings at other cinemas around the country. But this is how the urban areas break down in terms of the proportion of those 30 films you can see this week in your area.

State Of The Nation 2

While the larger areas have congregated towards the top, there are a few anomalies. The people of the larger areas of Birkenhead and Luton would likely be looking at a long journey to catch most of the films listed, although in Luton’s case there are a high proportion of Bollywood titles on offer as well; Birkenhead residents are faced with a trek to at least Liverpool to catch a wider variety of films. At the other end of the spectrum, Ipswich performs very well thanks to a community based cinema, and both Oxford and Cambridge perform especially well. Cambridge manages to come out joint second, despite having only three cinemas, and actually has performed consistently well; if you look at the list of specialised films in the first table, every one of those films has shown in Cambridge during November. A total of 24 of those 30 films have shown in Cambridge at some point in the past three months, a figure which makes me very glad to live where I do. You can then add in special, one-off screenings of classic releases or themed events, which would put another four onto the Cambridge total this week alone; the areas with cinemas engaged in such activities are almost all in the first column of that second table.

So the diversity of films available in Cambridge is significant, and is the rival or the superior of any city outside London. But when the Office Of Fair Trading and the Competition Commission are fighting for the interests of customers over price, who is protecting the interests of customers over choice? Not the Department Of Culture, Media And Sport, who seem to have no interest in this debate (and a number of us have written to them, and received dismissive replies). But what are customers truly seeking? What’s most important to cinema customers in terms of what their local cinema offers them? If only we had some form of survey to answer that question, such as the independent survey undertaken by GfK for the Competition Commission as part of their investigation.

State Of The Nation 3

This is slide 31 from their full presentation, available here. It shows that, of the 21,000 people surveyed, the choice of film is the single biggest driver to their reasoning. It would have been fascinating to see if that survey had given people the choice of one or the other, price or choice, to see which is the single biggest factor.

So the residents of the Cambridge area remain worried that their privileged position of cinematic choice is being put in jeopardy in an effort to protect them from a potential price rise. But my survey also shows that the ideas of the cinema chains such as Vue, Odeon and Curzon that the barriers of the marketplace are breaking down are nowhere near coming to fruition. Only two multiplexes, one in Cardiff and one in London, are showing Blue Is The Warmest Colour this week, a film only released a week ago and winner of the Palm D’Or at Cannes this year. Almost everything else on the specialised list is studiously being avoided by the big cinemas outside of London, and while the likes of Odeon and Curzon are diversifying heavily in their London outlets, that pattern is the complete opposite of the rest of the country.

There is still a clear divide in terms of cinema exhibition, with Picturehouse, Curzon’s London cinemas and a selection of independents (Manchester Cornerhouse, Leeds Hyde Park Picturehouse, Watershed Bristol, Showroom Sheffield, Newcasatle Tyueside, Broadway Nottingham and a few others) on one side showing a wide mix of crossover and specialised films, and the remainder (Cineworld, Odeon, Vue, Showcase, Reel, Empire and Everyman, plus smaller independent cinemas not in large urban areas) showing a mix of crossover and mainstream films. The only stipulation from the Commission is that cinemas have to be sold as a going concern, so any sale of the Picturehouses in Cambridge, Bury St Edmunds and Aberdeen could be to a cinema operator in the second list, not showing specialized films or at a drastically reduced rate, and at present no-one is fighting that corner on behalf of the customers who rate that more important than the price concerns raised by the OFT and the Competition Commission.

This survey isn’t intended as a critique of any one particular cinema or chain of cinemas, but a call to all of them to be doing the most they can for their customers. I intend to run this survey on a regular basis, hopefully at least monthly, in an effort to understand if there is any movement in the right direction, and that movement needs to be on a national basis, not just in one area. In a world where these specialized films make up just 8% of revenue already, does that seem commercially appealing to new operators of cinemas when the regulatory bodies are prioritising competition over choice? So who is going to fight for choice in our cinemas, not just in Cambridge or the other affected areas but across the country? The BFI? (Here’s a copy of their letter to the Competition Commission on 30th August, expressing just these concerns, but which didn’t carry the same weight as the cinema operators in the final analysis.) Maybe it should be other local independent film trusts and film clubs? Maybe it’s the customers of the cinemas, who surely should have the most influence over the operators if they put their mind to it? Or does the answer simply start with you?

(In case you're interested in more detail or want to check my workings - a move that I'd always encourage - here's the spreadsheet I compiled with my review of the 50 areas:
State Of The Nation Spreadsheet - November 2013
Any and all feedback welcome, as always.)

Competition Commission: The Definition Of The Cinema Market

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The man with the red letters refused to bow to George Lucas and his insanely long titles.
The man with the red letters refused to bow to George Lucas and his insanely long titles.

I’ve written a huge amount about the Competition Commission’s decision making process over the past few months, but one thing has been at the core of all the debates, and that’s how you define a cinema and its market. The Competition Commission and The Office Of Fair Trading have taken counsel from the people who ought to know how this works: the industry itself. However, the definition that they’ve come up with is one which simply differentiates between multiplex and non-multiplex cinemas, and has missed that there are other types of cinemas out there.

I do wonder if there had been a more accurate definition of the different types of cinema in the marketplace that we wouldn’t be in this mess now. What I do strongly feel is that, no matter the outcome of this process, that if we get into this debate again over any future mergers or acquisitions that the cinemas need to understand their own market and their customers better.

So I believe the market actually consists of five main types of cinema:

Large standard

Cinemas that focus on American and high profile British films currently on general release, typically with five or more screens. They may have some form of social area, and serve a small range of food and drink concessions to be taken into screenings. They will usually be found in either out-of-town areas in areas of high population concentration and are likely to form part of a large chain. They will focus on digital projection of films.

Small standard

As Large Standard (similar range of films shown and food and drink offered) but with less than five screens. They may be found either in or out of town, typically in smaller towns that cannot support a Large Standard cinema. They will typically be required to upgrade to digital projection if they haven’t done so already.

Premium

As Large Standard (similar range of films shown via digital projection and food and drink offered), and may form part of a Large Standard cinema. They will offer increased comfort and at-seat food and drink in return for ticket prices higher than those of a Large Standard cinema.

Quality

Cinemas that show a mix of both American and high profile British films, as well as world cinema and lower profile British films. They will offer a greater range of special interest events and showings of classic films, will have an alcohol licence and will offer hot and cold food for consumption in a dedicated area. They will also retain analogue film formats wherever possible.

Art-house

Cinemas that will focus almost exclusively on world and low profile British cinema at the expense of American and high profile British films. They are most likely to have screenings of older films or special interest events. They will have little or no focus on food or drink offerings, and will also retain analogue formats wherever possible.

I believe that 99% of cinemas in this country will clearly fit one, and only one, of these definitions. (There will always be the odd exception: take the Prince Charles Cinema in London, which is probably Independent with a bit of Small Standard by these outlines.) There are two things I don’t think you can apply to these definitions: the first is any sense of membership or ticket price definition, as cinemas in most of these sectors offer memberships which differ wildly in concept and execution and ticket prices will vary by geographical area. The second is live events, such as the National Theatre or the RSC, as these are increasingly being shown across all these types of cinemas. It is the films themselves, rather than live streamed events, that create the separation in definition.

These are the kind of cinemas I see fitting into these definitions:

Large Standard: The vast majority of cinemas owned by the major chains, including Odeon, Showcase, Cineworld, Vue and Empire, as well as the larger cinemas owned by Reel.

Small Standard: Cinemas in small towns, typically where there isn’t a Large Standard cinema present, such as some of those owned by Hollywood or Reel cinemas. They may also be the run by provincial operators such as Everyman who would be operating Quality cinemas in areas such as London.

Premium: The Showcase De Lux screens, Cineworld’s Screening Rooms in Cheltenham or the Odeon The Lounge Whiteleys.

Quality: Picturehouse cinemas nationwide, as well as the likes of Curzon and Everyman cinemas in London and major independents such as the Watershed in Bristol, The Cornerhouse in Manchester, The Showroom in Sheffield and the Tyneside Cinema in Newcastle.

Art-house: The ICA or the NFT at the BFI in London.

As digital projection increases, I can see cinemas who are currently small standard looking to make the transition to quality based on a wider range of offerings. The cinema most local to me in Ely, which operates for only one or two days a week, has recently made the transition to digital and they’ve already begun to open up the scope of their events, which is heartening news for locals.

Eventually it may be the case that these definition start to merge, that the distinction between Small Standard and Quality, or between Quality and Art-house, begins to break down. However, change is not always an agent of speed, and this could well take decades rather than years. But for now, there is a fight to protect cinemas in Aberdeen, Bury St. Edmunds and Cambridge which fall into the definition of Quality. If under new owners they become Small Standard, then they simply won’t be able to compete with the Large Standard cinemas in close proximity, and becoming Premium cinemas will remove all of the current customer benefits of price and choice that I and so many others have fought to protect these last few weeks. Hopefully the cinema industry will wake up to itself before it’s too late.

Competition Commission Plan B: The Manifesto For Quality Cinema

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It has now been almost four weeks since the Competition Commission published its findings into the Cineworld / Picturehouse merger and determined that Cineworld must sell a cinema in each area. They immediately decided to sell Picturehouses in Aberdeen and Bury St. Edmunds and are still deciding whether to sell the Cineworld or the Picturehouse in Cambridge. Cineworld have now actively been seeking purchasers for the various cinemas and we appear to be approaching a final decision in the next couple of weeks.

However, in the process of reaching their final decision, the reports attempted to define how the cinema market is broken down. It’s at the core of every argument that has followed about how Cineworld and Picturehouse cinemas are – or aren’t – different. The definition in the Commission’s final report broke the market down into just two types, multiplex and non-multiplex cinemas, simply by the number of screens. They had the following submissions from other cinema chains in paragraph 4.17 about non-multiplex cinemas:

Some of these cinemas show exclusively specialized films (and are typically referred to as ‘art-house’ cinemas), but the majority show a mix of mainstream and specialized films. Vue told us that in its opinion there were only a very small number of cinemas that played only specialized films, for example the Cornerhouse in Manchester, the Watershed in Bristol and the Showroom Cinemain Sheffield. Odeon said that there was no longer a differentiation in the eyes of the industry between ‘Hollywood films’ and ‘art-house’ films and that the distinction between different types of cinemas had been eroded by more complex fragmentation, with cinema exhibitors trying to meet commercial targets by programming the most successful films for each cinema on a week-by-week basis. A number of parties told us that they expected to see more overlap in future between film programming in multiplex and non-multiplex cinemas as digitization allowed all cinemas to be more flexible in their film programming.

Sorry Vue, but the independent cinemas you list all do what the Picturehouses do, and show films with an appeal across a wider demographic (the Alan Partridge and Richard Curtis type films) and supplement them with a diet of more specialist films. Odeon, you need to consider why there are films you show in the majority of your cinemas and those you don’t, particularly when considering what you show in your London venues such as Covent Garden and Panton St and what you show outside London. If you can’t see the difference, customers clearly can.

If you want a simple definition of films that illustrate the divide, then start with world cinema. I’ve seen films from over twenty countries in the Picturehouses and independents that I’ve visited in the last year alone and they are a staple of these kind of cinemas. You can normally spot when a subtitled film is playing in a multiplex: the cinema will sometimes have to put a sign up near the ticket kiosk warning people that the film is subtitled to attempt to reduce complaints, and the trailer for the film will feature little or no dialogue, so as not to give the game away. You could also add most low budget British film to this divide; I saw Clio Barnard’s outstanding British film The Selfish Giant last week at the Cambridge Arts Picturehouse, but I challenge anyone to find any multiplex outside London that’s shown it. Add in the screenings last week of classics such as An American Werewolf In London in Bury last Friday and E.T. in 70 mm, both of which were strongly attended and which are the rule at these cinemas and the exception elsewhere, and the quality of film needing to be protected becomes clear.

The report also made note of various cinema chains, including Showcase, Vue, Cineworld and Odeon who are offering whole cinemas or screens in existing outlets based on a premium cinema offering. These have larger and fewer seats and will bring food into screens for you. They charge at least 60% more, and show exactly the same kinds of films being shown in ordinary multiplexes, as confirmed in the report by Cineworld and obvious to anyone who looks at their cinema listings. This is fundamentally not the same as the current Picturehouse offering, and if any cinema owner attempted to convert a Picturehouse to this model, the increase in price would be several orders of magnitude higher than anything that the Commission originally envisaged Cineworld imposing and would lose at a stroke the quality of the current film offering.

It’s clear we need a better definition of types of cinema, if nothing else to stop us getting into this kind of mess in future. But more critically, with the sales of either two or three Picturehouses imminent, there is a clear demand from customers as to what they want from these kinds of cinemas, but the cinema industry itself has singularly failed in its attempts to describe this, and if we don’t make this clear to both the Competition Commission and the potential purchasers, we run the risk of these cinemas being run incorrectly, denying customers what they demand and putting their futures at risk. So it’s now down to us, the customers, to try to make it clear to the cinemas and the Commission how we see this breaking down.

So here’s my definition of a quality cinema, which I believe is a better representation of what the Picturehouse and other independents offer.

Manifesto Of Quality Cinema

A quality cinema is defined to be a cinema that has:

  1. a requirement to show at least 50% of film or event titles per week on average over a given period that are not shown at the multiplexes, although this may be a single screening for a given title
  2. in addition to this, a requirement to show an average of one title a week with at least one screening per day that is not showing at the multiplexes on a regular basis
  3. a requirement to offer off-peak screenings for over 60s for at least one day per week, screenings for parents with young children at least once a week, regular screenings and events for young children and students and provision for autism friendly screenings
  4. a commitment to offer access to festivals, including any currently operating festivals at any of the cinemas*, and to allow their operation on a like-for-like basis to current events
  5. a commitment to maintain any currently operating single screenings**, and to allow their operation on a like-for-like basis to current events
  6. a commitment to maintain an alcohol licence and the provision of hot and cold food not currently served at multiplexes***
  7. a commitment to maintain streaming of live and pre-recorded theatre and other cultural events other than films on a like-for-like basis with the current operation
  8. that they be allowed reasonable access to events distributed by the Picturehouse distribution arm in the manner of other similar cinema operators not owned by Cineworld
  9. a commitment to preserve any non-digital projection methods currently in use and to maintain any other support necessary to use these facilities
  10. to allow access to film clubs and other societies to host screenings or events such as film quizzes on a reasonable basis

* events such as the Cambridge Film Festival or other festivals where a series of films run under a specific theme
** events such as film clubs, or the regular Staff Pick events at the Abbeygate Picturehouse
*** the Competition Commission do not currently require any new purchaser to maintain the cafe at the Abbeygate in Bury St. Edmunds, which I believe has been an integral part of its current success

The Picturehouses would all currently meet this requirement, and I believe that any supplier, whether a chain or independent, taking these over should be required to agree to meet this set of criteria in principle.

The Competition Commission previously dismissed the option of applying behavioural controls, so this is intended to be something simpler and that wouldn’t require formal monitoring on an ongoing basis. It’s effectively an informal contract between us, the customers and any new operator, and indicates what we believe makes this a cinema we’d want to attend. The independent cinemas listed in the report and mentioned above would also fit into this definition or something very close to it. I still believe that the best option for price and choice for customers, and for their long term sustainability, is for them to remain in Cineworld and Picturehouse ownership, but if this cannot be achieved then I see this as the next best alternative.

The immediate action before any sale is agreed is that I believe the Commission should apply the above criteria as a test to any prospective purchasers. They have repeatedly and publicly acknowledged that there are differences between the Picturehouse and the other operators, and I believe they have a moral obligation to ensure that these differences are maintained while what they perceive to be the competition requirements are restored.

To be clear: the whole objection of the Commission and the Office Of Fair Trading is that the merger allowed Cineworld to profit at the expense of customers. If Cineworld is allowed to sell to the highest bidder without any form of quality control, they will have profited at the expense of customers. The only people who now have any direct power to influence Cineworld over who purchases their cinemas are the Competition Commission.

I have the support in principle of my own MP in seeking such assurances, and will be seeking other support to this view as well. I am prepared to organise a second petition if necessary to support this view. I will be contacting the Commission today with this proposal and I am keen to ensure it reflects public opinion as clearly as possible. At present the only written commitment from the Commission is to ensure that these are run as a cinema by the new owner. The fear is, as it has always been, that if someone attempts to run these cinemas without these kind of offerings that the customers will be poorly served and the cinemas will struggle to remain open, putting their futures in jeopardy. If you feel that anything needs adding to or changing in this manifesto, please let me know.

If you believe that the Commission needs to follow this or similar guidelines when reviewing any potential purchasers of these Picturehouse cinemas, then you can make your feelings known to the Commission either by contacting them directly at CineworldCityScreen@cc.gsi.gov.uk or by contacting the deputy chairman Alisdair Smith who chaired this panel at Alasdair.Smith@cc.gsi.gov.uk.

Competition Commission Plan A: The Legal Challenge

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It has now been almost four weeks since the Competition Commission published its findings into the Cineworld / Picturehouse merger and determined that Cineworld must sell a cinema in each area. They immediately decided to sell Picturehouses in Aberdeen and Bury St. Edmunds and are still deciding whether to sell the Cineworld or the Picturehouse in Cambridge. Cineworld have now actively been seeking purchasers for the various cinemas and we appear to be approaching a final decision in the next couple of weeks.

There remains an option to challenge the Competition Commission’s decision, through the appeals body known as the Competition Appeal Tribunal (CAT). Anyone with a grievance against such a decision may formally apply to the CAT to review a decision such as the one the Commission have reached. However, this is now entering a legal framework and as such the only way to overturn the decision is to find, in the words of the CAT, “that the disputed decision was based on an error in fact or was wrong in law.”

I still believe there are a number of misjudgements in the findings, ranging from the actual judgement of what constitutes the market to the economic arguments on which the final findings are based. However, my belief in that and being able to prove that to an appeals tribunal are two entirely different things, and so those working to protect these cinemas have come up with a plan of how to challenge this finding. Time is running out, and if an appeal is to be lodged then there are only four weeks left in which to do so, maybe less if a sale is agreed soon and would happen quickly. I still believe that the most stable future for these cinemas and their customers is if they remain in their current ownership, and consequently believe legal action to be the best route to securing that future – IF we can attract suitable support, and quickly.

The plan is as follows:

  • A number of us working together to fight this decision believe we have secured the potential services of a London barrister who is an expert in CAT proceedings and who will review the case to determine any possible successful avenues of appeal based on the case and the evidence we’ve collected.
  • This would cost a total of around £600; we have some offers of help with regard to this, but still need more to get it off the ground. In theory, with 14,400 people having signed the petition, finding 120 people to offer £5 each shouldn’t be hard, as it’s still less than 1% of people that signed.
  • This would then form the basis for a formal appeal, and we are then looking for further legal help to realise that case. However, the review should provide a stronger basis and make securing such support easier.
  • In the event that the legal review doesn’t find enough of a strong case to answer, we would reluctantly focus our efforts on other options (namely Plan B).
  • We will need to confirm funding in the next couple of days if we are to make any progress with this plan.
  • You should be aware that we have contacted Cineworld to attempt to understand why they are not pursuing an appeal, but have so far had no response.

I am aware that various parties, including some of the MPs we contacted, are still contacting the Competition Commission to try to get them to overturn their decision. Even if we had convinced the Commission that their argument was wrong, they have no powers to set aside their own findings once they are published, and despite Vince Cable stating in the House Of Commons that he was a former customer of the Cambridge Arts Picturehouse and generally sympathised with the view, he has no powers to overturn the decision either. The only way currently to stop the actions required by the Commission is an appeal to the CAT.

If you feel you would be able to make any contribution, no matter how small, to the appeal itself in the form of legal support or to the review in terms of financial support please e-mail me at movieevangelist@btinternet.com. A decision will be made in the next couple of days if there is enough support for this plan for it to move forward. If there is sufficient backing for this plan, I will then advise supporters of a transparent and secure method for making any contributions and keep people updated.

An Open Letter To Anyone Who’ll Listen In Response To The Competition Commission’s Open Letter To Me

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This is a long post. I apologise again, but feel the need to be thorough. I will try to summarise at the end if you want to skip to that. Probably after a picture of a kitten or something. If you’re going to read the whole thing, no-one would blame you for getting a cup of tea, then coming back. People have written shorter dissertations than this.

On Monday, around two weeks after it loses the legal ability to make any material difference, the Competition Commission finally issued a response to the questions that I and many others had been asking them since a day after they published their initial report on the 20th August. That date now feels a lifetime ago, and so much has happened since, that it’s starting to become increasingly difficult to disentangle the truth of the situation from the many arguments and counterarguments that have raged ever since. And by arguments, I mean the views of the general public, several MPs, an MEP, at least two Lords, the most significant independent film body in this country and several key members of the film and film journalism communities, and by counterarguments I mean the position of the Competition Commission and my local MP, James Paice, who to this date is still quite literally the only person to have agreed in any way with the Commission’s findings. If you find any more, please let me know, I’m still looking.

So let’s get something clear. In all of this, I still believe that the Commission genuinely believe they are acting in the best interests of the general public. I still think they believe that if they had not acted, that consumers would have been left at risk of a price increase. Not an actual price increase, mind you, a risk of a price increase. Those that know me and have read this blog regularly will know that I’m fond of analogies, and the only suitable one I can think of is trepanning. Sure, there are reasons and occasions why this may be a legitimate and necessary medical procedure, but you shouldn’t go drilling a hole in the head of everyone who’s got a headache; you’re liable to do far more more harm than good. I remain resolutely of the belief that the proposed course of action here will do far more harm, and is far more likely – in fact, guaranteed – to drive up prices, reduce choice and remove the quality of service, than the substantial lessening of competiton ever would have done, and I’m almost more frustrated that the Commission can’t see that than their inability to distinguish on markets.

I’ve tried to remain professional through all this, despite having had to attempt to understand hundreds of pages of documents in a short space of time, many of it written in a legal speak to which I am entirely unfamiliar, in the face of a group of people who to outside observers have seemingly gone as far out of their way as possible not to understand the arguments being made to them, and clinging resolutely to their single defence and line of argument. I am now going to attempt to respond to the points made by the Commission yesterday, and in doing so I apologise in advance if that professional demeanour slips just occasionally, as it nearly did in the title of this post. (Also, dear reader, you keep having the patience to read this stuff, so I’m sure you’ll understand my need to make this as easily readable as possible.) Finally, I’m using edited sections of the full letter here; please refer to the full letter if you need further clarity – it might be worth reading it in full first before you read this if you haven’t – and if you feel I have misconstrued any of the Commission’s points by the edits I’ve taken, please let me know, as my intention is to try to clarify my thinking, not to cloud theirs. Portions of the Commission’s letter are in italics for clarity, and any extracts from the final report are in a smaller font.

Here goes.

Read the rest of this entry »

An Open Letter From The Competition Commission To Me

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After repeated letters to the Competition Commission, including letters sent to the Commission e-mail address on the 3rd and the 10th September this year, in which I sought a response to a number of questions around their findings, the Commission have finally responded to me via the deputy chairman and the head of this particular panel, Alisdair Smith. I am grateful that the Commission have finally engaged in dialogue, around two weeks after their decision has become legally binding.

They have given me a response to my initial queries plus a subsequent post on the condition that I reproduce it in its entirety, without edits, and I do so below. I will be writing my own response to their response tomorrow, but until then feel free to make your own mind up.

AN OPEN LETTER FROM THE COMPETITION COMMISSION TO MARK LIVERSIDGE

Dear Mark

 

In your Movie Evangelist blogs, you have made several reasoned criticisms of the  Competition Commission (CC) decision on Cineworld’s acquisition of Picturehouse. Several of your points have been picked up by other commentators or members of the public who have written to the CC.

As you know, the period after the publication of the CC’s provisional findings report in August was when interested parties could influence our thinking. The legal framework within which we operate does not allow us to re-open an inquiry after the publication of the final report.

Nonetheless, we think it is in the interest of public understanding to address the points you have raised. That’s why I am writing this open letter to you. It serves only to state our position on certain issues. It is not being sent to initiate a further debate. And we must stress that the comments that follow are not formal positions; our Final Report, published on 8 October, is the definitive legal statement of our findings.

Letters from the general public

It has been suggested that we have taken no notice of the many comments from the general public we received on our provisional findings of 20 August 2013. That is not the case.  We gave these comments careful consideration and indeed sought to address points made in those letters where we felt that our provisional findings had not sufficiently explained our thinking.

 

In particular, we explained at paragraph 6.5 of the final report how we had taken into account the differentiation between Cineworld and Picturehouse in our analysis of the impact of the merger. Similarly, we responded to your specific and interesting point on the effect of Cineworld’s Unlimited Scheme directly in the final report at paragraph 6.55.

Specific points

In your blog dated October 8, you make several points and ask a number of questions. I respond below to some of the numbered questions – although this does not mean that we agree with the other points you have advanced but on which I have not commented.

 

1. Was there no requirement to set a suitable threshold of competition in a particular area?

The task of the CC in a merger inquiry is to decide whether there is a substantial lessening of competition in a particular case referred to it by the Office of Fair Trading (OFT), given a particular set of circumstances. Our task was not to consider the whole landscape of competition in cinema exhibition in the UK.

The CC is required by law to identify the market that is relevant to the merger in question.[1] The market for cinema exhibition is largely a local market, so the question becomes whether there is a substantial lessening of competition in particular localities. Indeed, cinema exhibitors told us the specific local conditions of areas were key drivers of their product offering. The report summarises the evidence we received on this matter in paragraphs 6.6 to 6.20. There is no simple rule which determines how many competing cinemas could successfully operate in a given area.

There may well therefore be communities comparable to Bury St Edmunds which are served by a single cinema operator, but that has no bearing on whether this merger results in a substantial lessening of competition in Bury St Edmunds.

 

2. The OFT’s initial report indicated that Cineworld and Picturehouse operate in different markets

This is not the case: paragraph 110 of the OFT’s report of June 5 referring the merger to the CC states: “The OFT has analysed the transaction against a market for film exhibition services in this case. It has considered whether it is appropriate to segment this wider market by art-house and multiplex cinema. The parties failed to provide sufficient evidence in support of their arguments that the product market should be further segmented, Further, a number of pieces of evidence including: survey evidence, entry analysis, price concentration analysis and film overlap analysis indicates that there is competition between art-house and multiplex cinemas and it would not be appropriate to segment the market in this case.”

 

3. Why is it believed that introducing another party to these areas will have the effect of reducing prices?

The evidence discussed in paragraphs 6.14 – 6.20 and the econometric analysis of the relationship between prices and local concentration in Appendix C suggest that the extent of local competition affects prices.

 

4. Why were membership schemes excluded from the CC’s analysis?

Membership schemes were not excluded from the CC’s analysis. In our survey, as described in 4(b) of Appendix D on consumer surveys, separate questions were asked about membership schemes. We agree that the Cineworld membership scheme effectively sets a national price for membership. However, the results of our analysis gave us more concern about future Picturehouse prices than Cineworld prices in Aberdeen, Bury St Edmunds and Cambridge. The Picturehouse membership scheme is different the Cineworld scheme and does not insulate members from local price increases.  The different cinema membership schemes are described at paragraph 6.22 of the Final Report and the specific point made by you about Cineworld’s Unlimited Scheme is considered at paragraph 6.55.

 

5. Is there any evidence of any other part of the country where competition alone is successful in influencing prices? On inspection, the prices seem to be set at a level more related to the general cost of living than the factors used in the correlation in the report, and comparisons with local areas with both more competition and no competition do not suggest any evidence of a strong effect of competition on prices in this sector. The subsequent fear is that any competitor purchasing either of the cinemas will not be able to be restricted from raising prices from current levels, and I would be keen to understand the Commission’s powers to influence in this regard.

As explained in the CC’s merger assessment guidelines, competition between firms is generally expected to create incentives for firms to cut price, increase output, improve quality, enhance efficiency, or introduce new and better products.[2]

In relation to cinemas specifically, our econometric analysis found local competition effects after allowing for local cost effects. It is the strength of local competition which will restrict a purchaser of the cinemas to be divested from raising prices.

 

6. What controls will the CC put in place to prevent price increases as a result of a change in ownership?

The CC is not proposing price controls and we see no reason why a change in ownership should result in a price increase.

Economic terms

You entitled a blog of  October 13  “A request for the Competition Commission to explain basic economics to me”, and particularly asked about “GUPPI”.

GUPPI calculations, described and used in Appendix F to the Final Report, on Pricing incentive analysis, are a standard tool for considering the effects of reduced competition following a merger in markets, like cinema exhibition, where sellers offer products which are differentiated from the products of their competitors. It is perhaps worth adding that the GUPPI calculations were only one element which went into the judgements about whether there would be a substantial lessening of competition.

 

Primacy of the Final Report

We hope this open letter goes some way to help you and other critics of the CC come to a better understanding of our findings on Cineworld’s acquisition of Picturehouse. We must stress again in conclusion that these one-off comments are intended solely to help you and the wider public understand our reasoning; and the CC’s final report remains the definitive legal statement of our reasoning.

 

Kind regards

 

Alasdair Smith
Inquiry group chair on behalf of the inquiry group and staff

 

E: Alasdair.Smith@cc.gsi.gov.uk

T: @Smith_Alasdair